Toddling recycling company grows up

Roy Brown knows an amazing fact about South Korea and Japan: Parents there change their children's diapers about 15 times a day - twice as often as North Americans.

Such news raises his hopes of doing big business in Asia.

Mr. Brown is president and chief executive of Knowaste Inc., which recycles disposable diapers. Asia, he says, has less empty landfill space than the United States and Canada. And Asians are willing to pay more to dispose of waste.

Knowaste's recycling process may prove more cost-competitive in Asia than it has been in Canada. The first North American company to recycle diapers, Knowaste is a case study in the shifting economic currents in which environmentally minded businesses must operate.

In theory, municipalities should be beating down Brown's door. Disposable diapers seem to have a half-life in landfills nearly that of nuclear waste. And many Canadian cities are running out of politically acceptable landfill space. (Earlier this month, Toronto approved a controversial plan to stuff its refuse into the shafts of an abandoned mine in the northern Ontario community of Kirkland Lake.)

But for the moment, Knowaste is "a technology in search of a market," Mr. Brown admits.

The company started in the early 1990s when Ontario's socialist government nearly tripled landfill fees in order to encourage recycling. Knowaste offered to haul off diapers from hospitals, daycare centers, and neighborhood curbsides to its recycling facility, charging fees competitive with landfills.

But when a conservative government took power in 1995, it cut landfill fees back to earlier levels. The recycling sector went into a freefall. Knowaste could not compete with cheaper traditional garbage haulers. "It taught us a lesson - don't build a business on a government policy," Brown says, sadder but wiser.

Adapting at home and overseas

The company has reinvented itself since, and now has two business lines - one in Canada and the other in Europe.

One line is SmallPlanet Inc, a residential service in metro Toronto which provides biweekly pickup of used diapers for $6 a stop. It charges slightly less to those customers who buy disposables from SmallPlanet. The company does not make new disposables from used ones, but instead sells name-brand diapers at roughly standard retail prices. SmallPlanet also retails a select line of environmentally friendly baby-care products.

"Convenience with a conscience," is the slogan at SmallPlanet. "We thought [customers] would join us out of environmental concern, and stay with us for the convenience," says Brown.

But the environmental aspect really is paramount. Lis Soderberg is typical of Smallplanet's 2,100 customers in metro Toronto. "The environmental aspect is about 66 percent of the reason I'm with Smallplanet," she says with perhaps surprising precision, and then rethinks her assessment. "Definitely more than half - not quite three-quarters," this mother of two and voiceover talent says. "I'd love to see more money devoted to programs like these," she adds.

Knowaste's other operation, an industrial-scale recycling facility in Arnhem, in the Netherlands, opened last December. It takes diapers from hospitals and nursing homes and recycles them into reusable high-quality paper pulp, plastic, and a substance called super-absorbent polymer. (Among other uses, SAP has helped clean up oil spills.)

It's not quite the same as spinning straw into gold. But these three end products are sold to industrial manufacturers. Knowaste's Canadian plant is more research oriented and gives its recycled goods away since they aren't produced in commercial volumes. To catch the eye of recycled solid-waste buyers, Brown says, "you need to have truckloads and truckloads of the stuff."

Knowaste's technology - patented in Canada, the US, Europe, and Japan - is a process rather than a machine, Brown says. It is essentially a pulp-and-paper plant with a wastewater treatment capability built in.

The company's revenues were US $1.2 million for 1999. Three-quarters of that was from Smallplanet's Canadian operations. But the privately held company sees its future in Europe. Waste disposal fees there are typically $120 to $140 per ton (compared with $40 a ton in Canada and as low as $20 a ton in the US) - a function of land prices, not government policy. "It's a much more mature recycling market," Brown says.

Greater population density helps, too - the area surrounding the Arnhem plant has some 65 million inhabitants, more than twice as many as all of Canada.

California here we come?

Still the company hopes to make inroads into the US. The Los Angeles County Waste Management Task Force has been considering disposal options, including Knowaste, and will report to the Board of Supervisors early next month. "We have every reason to believe they will be positive toward us," says Brown. His company is also pursuing a contract with a small municipality in California.

Can recycling make it as a business, and not just an expression of consumer idealism? Industry analysts are of mixed opinions. "Recycling is treated as a social good," says one New York brokerage analyst who requested anonymity. "It's something most individuals find attractive. But the economics are poor. It doesn't merit investment."

Jaimi Goodfriend, an analyst at First Analysis Securities Corporation in Chicago, is modestly more bullish. She says that waste-management companies involved in recycling are, relatively speaking, where the action is. "And the prices for OCCs" - old corrugated containers, a benchmark commodity in the waste-management sector, rather like sweet light crude in the oil business - "have been much, much higher." She sees the outlook as "more favorable."

Meanwhile, Brown's eyes are on Asia. Just imagine: 15 diaper changes a day.

(c) Copyright 2000. The Christian Science Publishing Society